Power play: How a small co-op wants to open #Nevada ‘s electricity market and own it

Power play: How a small co-op wants to open Nevada’s electricity market and own it

Valley Electric Association is taking on NV Energy and dreaming big.

The headquarters for the Valley Electric Association sits off a main highway with billboards advertising the casinos of Pahrump, Nev., a small desert outpost about 60 miles from Las Vegas. As with many rural electric cooperatives, VEA was formed in the 1960s to electrify an expansive but sparsely-populated area unserved by the region’s big utility, the Nevada Power Company.

Today the Nevada Power Company is NV Energy, and it is the 800-pound gorilla in the Nevada market. It owns about $3 billion in generation assets, in addition to dozens of power contracts. It serves more than 1.2 million customers spread across a 46,000 square-mile service territory that includes Las Vegas and Reno, Nevada’s urban centers. It has more than 2,500 employees.

By contrast, VEA owns no generation assets. And from its unassuming headquarters in Pahrump, it serves about 45,000 customers over a 6,800 square-mile stretch of desert east of Death Valley.

But it has its sights on NV Energy’s service territory.

In a recent filing, it asked utility regulators for permission to sell electricity to large businesses that defect from NV Energy. Under legislation passed after the 2000-2001 Western energy crisis, multiple casinos and data centers have left the utility to buy power from other providers. Through a subsidiary, VEA wants to be a provider of wholesale electricity for commercial customers.

It’s also pushing for the Energy Choice Initiative. The ballot measure to restructure Nevada’s market, if approved again in 2018, would give all customers the ability to select their power provider. VEA sees an opportunity in being a retail provider, and it wants to be the largest one.

“If energy choice becomes a reality in the state of Nevada, our goal is to become the largest energy service provider in the state,” said VEA CEO Tom Husted one Friday in October.

Analysts differ on VEA’s prospects for success, but no one denies Husted’s ambition.

Conductor of the orchestra

VEA is an outlier among co-ops.

In the past, rural co-ops have resisted retail competition. Given their small size, co-ops can be particularly vulnerable to extensive market changes. During the first wave of restructuring in the mid-1990s, the National Rural Electric Cooperative Association opposed retail choice (the trade group is working on a report revisiting the issue). When Texas restructured its power market, it excluded co-ops but gave them the ability to opt into competitive markets. Only one co-op did.

Even back in the late-1990s, when Nevada lawmakers first flirted with retail competition, VEA embraced it. It was around that time that VEA and the Nevada Rural Electric Association ended their relationship. The trade group for co-ops in Nevada and California hasn’t taken a position on the state’s current Energy Choice Initiative, but it doesn’t see its members as retail providers.

Most rural electric cooperatives in Nevada are watching the Energy Choice Initiative from afar. These rural co-ops own few generation assets, if any, and procure power, which they then distribute within their service territory. In this way, the Nevada Rural Electric Association’s executive director sees his members as customers buying power in the market, not as vendors.

“We consider ourselves buyers,” said James Wadhams, the group’s attorney.

VEA wants to flip that paradigm with an ambition that has raised more than a few eyebrows.

Over coffee in his office in October, Husted, VEA’s CEO, argued that technologies, including distributed generation, are giving customers large and small (including co-op members) more options to manage their energy. As a result, it is splintering the old, top-down utility model. People want choice, Husted said, and VEA sees a way to increase its business by offering it.

“We see our role in the future, not as a dictator (in) this very regulated, vertically-integrated industry, but more as the conductor of the orchestra,” Husted said. “You may be buying power from us in one hour and selling it to us in the next hour. What we’re doing is managing that.”

An opening for a subsidiary

After the Western energy crisis, Nevada lawmakers mostly abandoned plans for a restructured market, with one significant exception. The legislature kept energy choice for large businesses.

The loophole gave large consumers a regulatory pathway to procure power without NV Energy. Companies with a load of at least 1 megawatt could defect if they paid impact fees and received regulatory approval. Once done, a firm other than NV Energy could sell them power. Starting in 2014, several large companies began looking at the measure as a way to leave NV Energy — a move that could help them tap into low natural gas prices and boost their renewable bona fides.